Law and politics
Policies and Practices
What are, in general terms, your government’s policies and practices regarding foreign investment monitoring and review?
Generally, there are specific factors that the government will consider before approving foreign investment in Vietnam. In particular, restrictions on foreign investment are provided for in Vietnam’s WTO commitments and in its other international or bilateral treaties and national laws, including those on national security, antitrust and business approval.
Monetary control of foreign investment is uniformly managed through the capital account system. When making indirect investments in Vietnam, foreign investors only need to open indirect investment accounts with credit institutions to make money transfers related to indirect investment activities.
Companies with foreign direct investment (FDI) in Vietnam are required to open direct investment capital accounts with credit institutions to conduct capital transfer transactions related to direct investment activities.
Monitoring is ensured by an information and reporting mechanism. Credit institutions with which foreign indirect investors and FDI companies open accounts must comply with the monthly reporting regime prescribed by the State Bank of Vietnam (SBV). Thus, the SBV can capture timely information on capital flows from investment activities to assess the impact of capital flows on the stability of the foreign exchange market in particular and the economy in general.
What are the main laws that directly or indirectly regulate acquisitions and investments by foreign nationals and investors on the basis of national interest?
There is no single law governing acquisition and investment by foreign nationals and investors on the basis of national interest in Vietnam. Foreign investors wishing to invest in Vietnam should pay attention to the main specific laws and regulations related to acquisition and investments, including:
- WTO commitments (the Schedule of Specific Commitments in Services) and other international or bilateral treaties signed by Vietnam, which describe the services Vietnam allows foreign service providers and additional conditions, including limits on foreign holdings in a Vietnam-based company;
- Enterprise Law No. 59/2020/QH14 adopted by the National Assembly of Vietnam on June 17, 2020, effective January 1, 2021, which governs the establishment, organization, restructuring, dissolution and business related businesses in Vietnam;
- Investment Law No. 61/2020/QH14 adopted by the National Assembly of Vietnam on June 17, 2020, effective January 1, 2021, which generally regulates investment activities by or in enterprises;
- Securities Law No. 54/2019/QH14 adopted by the National Assembly of Vietnam on November 26, 2019, entered into force on January 1, 2021;
- Competition Law No. 23/2018/QH14 adopted by the National Assembly of Vietnam on June 12, 2018 and its implementing and guiding regulations;
- Exchange Control Ordinance No. 28/2005/PL-UBTVQH11 adopted by the Standing Committee of the National Assembly on December 13, 2005, as amended by Ordinance No. 06/2013/UBTVQH13 of March 18, 2013 ; and
- other specific legislation applicable to foreign investment in Vietnam-based companies that engage in certain regulated areas, for example, banking, financial services and insurance.
Describe the scope of these laws, including the types of investments or transactions affected. Are minority interests taken? Are there specific sectors over which the authorities have the power to monitor and prevent foreign investment or sectors which are subject to particular scrutiny?
For WTO membership, Vietnam is committed to opening the market to foreign investment in certain service sectors within the framework of WTO commitments. So far, there are still restrictions on the maximum percentage of foreign ownership or forms of investment with respect to certain service sectors. For example, advertising services require the foreign investor to establish a joint venture with an existing Vietnamese advertising company, while some transportation and banking services have an overall cap on foreign ownership.
The Investment Law is the main national law governing foreign investment activities in Vietnam. Its guiding legislation (Government Decree No. 31/2021/ND-CP of March 26, 2021) provides a combined list of business sectors for which foreign investors are subject to market access restrictions. The list is divided into two sections: (1) business sectors for which Vietnam has not yet opened the market to foreign investment; and (2) those for which foreign investors must meet conditions to enter the market. These conditions generally include restrictions on the percentage of foreign ownership, the form of investment, the scope of investment activities, and the capabilities of the foreign investor and local partners involved in an investment project. Of the services sectors on the list, those under particular scrutiny include banking, education, telecommunications with network infrastructure, publishing, and healthcare.
The Business Law provides the legal framework for starting a business, corporate governance and operating a business in Vietnam.
How is a foreign investor or foreign investment defined in applicable law?
Under the Investment Law, a “foreign investor” means a natural person of foreign nationality or an organization established under foreign laws making business investments in Vietnam. However, the term “foreign investment” is not defined in the Investment Law. Instead, Vietnamese lawmakers introduced the term “business investment”, which is generally defined as an investor investing capital to conduct business. This term is generally described as the investment activities carried out by investors, including foreign investors, Vietnamese investors or foreign-funded business organizations in Vietnam.
Special rules for public companies and sovereign wealth funds
Are there any special rules for investments made by Foreign Public Enterprises (EPs) and Sovereign Wealth Funds (SWFs)? How is an SOE or SWF defined?
Vietnamese legislation does not provide any specific definition or special rules applicable to foreign public enterprises and sovereign wealth funds. SOEs and foreign SWFs are therefore required to comply with investment regulations under Vietnamese law, which all foreign investors must comply with when investing in Vietnam.
Which officials or bodies are the competent authorities to review mergers or acquisitions for reasons of national interest?
Under the Investment Law, if a foreign investor wishes to acquire shares or contributed capital in a Vietnam-based company, he must obtain written approval for such acquisition from the Department of Planning and Investment where is the target company, if: the target company engages in a line of business that is conditional on foreign investors and the acquisition of shares or the contribution of capital by the foreign investor results in an increase in the ratio foreign ownership of that company; the foreign investor acquires more than 50 percent of the shares of the target company; or the foreign investor acquires shares in a target company with the right to use land located on islands, border or coastal areas, or other areas affecting national defense and security.
Notwithstanding the above laws and policies, what discretion do authorities have to approve or reject transactions on national interest grounds?
If foreign investors have met all the legal requirements applicable to their investments in Vietnam, the authorities are theoretically not allowed to reject a transaction made by foreign investors for reasons of national interest. In particular, foreign investors will be allowed to invest in all industrial sectors and fields that are not prohibited by the Investment Law. However, in practice, the authorities have the discretion to approve or reject any transaction made by the foreign investors if they decide that these foreign investors have not met their requirements based on their point of view. The Investment Law expressly stipulates investment policies relating to national defense and security for the review and approval of transactions made by foreign investors.